Why CarMax Makes More Money on Used Cars Than Anyone Else(jalopnik.com)
jalopnik.com
Why CarMax Makes More Money on Used Cars Than Anyone Else
https://jalopnik.com/heres-why-carmax-makes-more-money-on-used-cars-than-any-1826415410
114 comments
>The only easier industry to disrupt is probably furniture or mattress sales.
I walked into a mattress store recently, and was absolutely horrified. It's very obvious what their tactics are. The sticker price on everything was easily 3x what the cost of a decent bed/mattress should be, to the point it was obvious none of the clientele in there would be paying that full price upfront. They only talk about everything in terms of "monthly payments". It's very obviously just a scheme to trap poor people who can't just put an $800 mattress on a 0% credit card into making 5 years worth of payments and interest on something they can't afford.
I walked into a mattress store recently, and was absolutely horrified. It's very obvious what their tactics are. The sticker price on everything was easily 3x what the cost of a decent bed/mattress should be, to the point it was obvious none of the clientele in there would be paying that full price upfront. They only talk about everything in terms of "monthly payments". It's very obviously just a scheme to trap poor people who can't just put an $800 mattress on a 0% credit card into making 5 years worth of payments and interest on something they can't afford.
Buying a mattress is aggravating, but my experience has been rather different. Maybe I went to different types of stores, I don't know. I did notice that each store/chain seems to sell very similar mattresses that are somehow technically different models so you can't directly compare prices.
First mattress I bought had a sticker price of I think $850 plus tax. Ended up haggling and paying $550 cash (tax included) for the mattress with a cover included.
Second mattress I bought had a sticker price of around $2800. Haggled down to $900 after tax again with a cover included. It was significantly better than the first one.
Both were queen sized, included delivery and offered haul-off.
First mattress I bought had a sticker price of I think $850 plus tax. Ended up haggling and paying $550 cash (tax included) for the mattress with a cover included.
Second mattress I bought had a sticker price of around $2800. Haggled down to $900 after tax again with a cover included. It was significantly better than the first one.
Both were queen sized, included delivery and offered haul-off.
>Second mattress I bought had a sticker price of around $2800. Haggled down to $900 after tax again with a cover included.
You have great negotiation skills
You have great negotiation skills
My negotiation skills are okay, but mattresses have absurd markups.
Sales guy said $900 was the wholesale price, but I highly doubt that. I'm sure they still made at least a few hundred dollars on the sale. I've heard the wholesale price on a $3000 mattress can be as little as $300.
Sales guy said $900 was the wholesale price, but I highly doubt that. I'm sure they still made at least a few hundred dollars on the sale. I've heard the wholesale price on a $3000 mattress can be as little as $300.
I went to such a store, couldn't believe the prices and number of salesmen. I literally walked across the street and was shown something half the price, and when I asked for something cheaper, they showed me something cheaper.
The lesson I learned was to never buy something from a brand you hear constantly on the radio. You'll end up having to pay for all that advertising.
The lesson I learned was to never buy something from a brand you hear constantly on the radio. You'll end up having to pay for all that advertising.
I think this every time I hear Geiko ads.
We ended up finding a local place where they manufacturer the foam mattresses in-house. Rather than pick and choose which model you like, you pick among options. There are 3-4 firmnesses. You can choose the firmness on each side of the bed. You can choose thickness of the mattress. You can choose exterior quality also. In the end the finished product looks as good as the major manufacturer and costs half the amount. They also get it ready and delivered in 2-3 days.
You'd be surprised how much "old boy network" stuff is involved in used cars. Calculating taxes is a giant pain (and no one except CarMax has even solved this problem as far as I can tell). Some states have extremely draconian laws, especially those relating to the environment (which are arguably in the public's interest) and those relating to state inspection (which are arguably just a glorified protection racket). Not to mention, having a full lot with reliable used cars is quite capital intensive. And a used car company needs pretty solid knowledge about which cars to actually turn around and which to dump, so they don't actually sell a lemon to retail consumers.
>Calculating taxes is a giant pain
Depends on the state. In Georgia, you can go to the Department of Revenue's site, punch in a VIN or year/model of a car, and get the exact ad valorem that would be due when buying a car. It makes it pretty trivial to figure out what your ballpark out the door price should be before you even start negotiating and avoids letting the the dealership make negotiations revolve around monthly payments.
I have my issues with how Georgia does AVT -- it's paid on any car when first registered in the state, including a car you already own when moving in -- but it's kind of ridiculous that at least being able to easily know what the state is going to charge you isn't standard across the board.
Depends on the state. In Georgia, you can go to the Department of Revenue's site, punch in a VIN or year/model of a car, and get the exact ad valorem that would be due when buying a car. It makes it pretty trivial to figure out what your ballpark out the door price should be before you even start negotiating and avoids letting the the dealership make negotiations revolve around monthly payments.
I have my issues with how Georgia does AVT -- it's paid on any car when first registered in the state, including a car you already own when moving in -- but it's kind of ridiculous that at least being able to easily know what the state is going to charge you isn't standard across the board.
Yes, of course it depends on the state. CarMax operates in 41 states.[1] Given that some customers are known to cross state lines in order to purchase vehicles, CarMax likely calculates taxes for every state except Alaska and Hawaii. In some states, the tax rules are arcane enough that they depend on the municipality as well.
1. https://www.carmax.com/stores
1. https://www.carmax.com/stores
What's the argument for state inspection being a "glorified protection racket"?
In certain states, the number of permits to perform state inspections is capped. New entrants who want to perform inspections (which a used car dealer will typically need to do) have to either wait in line indefinitely or buy up an existing permit-holder.
State inspections may improve vehicle safety at the margin. However, when state inspection permits are treated like taxi cab medallions, the cost-benefit comparison becomes a bit skewed.
State inspections may improve vehicle safety at the margin. However, when state inspection permits are treated like taxi cab medallions, the cost-benefit comparison becomes a bit skewed.
The usual argument is that it's just a waste with no safety benefit. Some states that previously required annual inspections have eliminated them, and traffic deaths per mile driven haven't increased.
There's value in removing negotiations to end consumer. The expectation to negotiate can introduce stress and uncertainty into an already-stressful large purchase. CarMax removes that, and captures the value in higher prices.
But it is interesting that more people don't do a quick check of Kelly Blue Book. For example BMW 328i in article at Carmax is $27k. On KBB selling to private party value is $21k-$23k. Maybe there are some special features on one in Carmax inventory but doubtless there is a markup there.
But it is interesting that more people don't do a quick check of Kelly Blue Book. For example BMW 328i in article at Carmax is $27k. On KBB selling to private party value is $21k-$23k. Maybe there are some special features on one in Carmax inventory but doubtless there is a markup there.
A lot of people are probably happy to pay the premium to avoid the relative uncertainty, risk and awkwardness of a private sale.
Not only that, CarMax will support you if the car turns out to have problems. Try getting that when you are curbstoning
exactly this
The value of buying from CarMax is a level of assurance that I won't be buying a lemon and that I'm doing business with a company with a positive reputation.
I'm in my early 40s and I've only had five cars. The first two were from a car dealer who was the father of my best friend, one new one and two from CarMax for myself and my wife. My experiences at CarMax were much better than my one time buying a new car from a dealer that I didn't know personally.
I'm in my early 40s and I've only had five cars. The first two were from a car dealer who was the father of my best friend, one new one and two from CarMax for myself and my wife. My experiences at CarMax were much better than my one time buying a new car from a dealer that I didn't know personally.
I've never used CarMax but I'd definitely consider them if I wanted a used vehicle. I'm in a similar situation when it comes to keeping cars a long time. If anything, I tend to keep them for an expensive repair job too long.
It does make the car buying experience easier. I know the trade-in isn't worth much and I can always just donate as a fall-back. I also haven't needed to finance for a while. When you can just basically ignore the dealer number BS and go in with a take it or leave it price based on the invoice, the experience may still be annoying but it's not particularly stressful.
It does make the car buying experience easier. I know the trade-in isn't worth much and I can always just donate as a fall-back. I also haven't needed to finance for a while. When you can just basically ignore the dealer number BS and go in with a take it or leave it price based on the invoice, the experience may still be annoying but it's not particularly stressful.
I've never done a trade in. My first car I gave back to my parents, my 2nd one was totaled, and my third one I gave to my son. I've gone to CarMax both times with a preapproved car loan but they have always had a lower interest rate.
Car max has a long comprehensive waranty. It may be worth it to someone for ther peace of mind.
You pay that warranty on top. And it is good deal for a car that you know will require service. You can find good deals at CarMax. I found a car at CarMax $2k under the dealer. Now maybe I could’ve gotten it cheaper otherwise but I doubt much more.. also you have to realize that used cars are in demand vs new. Today it is often cheaper to buy new.
If you see a used car at the dealer, definitely negotiate it there too. Look the car up on CarFax and see if they acquired it at auction, then look up the average auction price for that year/model/trim and you'll have a good idea how much room they have to work with. Most dealerships make more money selling a used car than a new car so there's usually a healthy margin for you to take a piece of.
Source: my dad runs a dealership and I have negotiated used car prices at other dealerships.
Source: my dad runs a dealership and I have negotiated used car prices at other dealerships.
Where is a good source of average auction prices?
The warranty can be a really good value on some used cars https://youtu.be/MzQCj-dbgN0
Whats weird is he never says exactly what he paid for the Range Rover in the first place. I found a post where he said it was in the 30s. but why not tell that info?
Then could compare Car cost + warranty vs private party purchase.
Then could compare Car cost + warranty vs private party purchase.
why would he? The point of the video is to highlight the value Doug derived from the carmax warranty. He has one for the Aston, which goes into detail on cost of the car etc. https://www.youtube.com/watch?v=hrrFAjxKtj0
TLDR: Over $16,000 paid out on a $3,900 six year CarMax warranty.
I've never bought a car at Carmax but when I was selling my car they offered me a better price than the dealer.
Of course there is a markup, but it's better to look at buying, not selling KBB prices. Buying from a private party is usually the cheapest option, but the hardest to get right. Buying used from a regular dealer can be cheaper than Carmax, but you need to do a lot of negotiating and even then, it's typically not that much cheaper.
Carmax makes a ton of money because they bring new meaning to "low-ball" when they offer to buy your car. Go see what they'll offer you for a car just as a test, then go look up your car value on KBB, edmunds, anything.
When I sold my last car, they offered me $2k and I ended up selling it the next week for $7k.
Carmax goes after people who are either too lazy to sell it themselves or too desperate and need the money immediately.
When I sold my last car, they offered me $2k and I ended up selling it the next week for $7k.
Carmax goes after people who are either too lazy to sell it themselves or too desperate and need the money immediately.
I sold my truck last week to them for 16200. KBB online "instant offer" was 18k. I went to the dealership that KBB directed me to and their official offer was 13000. The salesman told me KBB's offer wasn't official and was just meant to get me to their lot.
So I went back to carmax and sold it for the 16200. I might have gotten a bit more on Craigslist or eBay but my time is worth more than that. Whole transaction took less than an hour.
So I went back to carmax and sold it for the 16200. I might have gotten a bit more on Craigslist or eBay but my time is worth more than that. Whole transaction took less than an hour.
Your time is worth more than what, exactly? How many hours of work is worth an extra $1000?
Apart from CarMax, there are essentially two routes for selling a vehicle. The first is a private sale, which basically involves taking on a temporary, part-time job to have people meet you, test drive your car and then negotiate for the correct price. Craigslist makes this easier, but it's still intense. I'd love to see hard data on the amount of effort involved in private sales, but from anecdotes from friends who have done it, a person can easily invest tens of hours in attempting to get the vehicle sold on the market. That adds up to $1k fairly quickly. Private sale makes the most sense as a hobby. (I'll note that some startups like CarLotz exist that basically have a consignment model for private sales that may work slightly better in certain circumstances.)
The second route is the "trade-in." Most dealers almost never pay cash for the amount of money that they offer for trade-in. It's purely a negotiating tactic meant to make a buyer feel better about a (relatively arbitrary) price on a car ("$14k for a 2015 Ford Focus is kind of high, but we really like that we're getting $4k for our 2007 Pontiac Aztek!"). Whenever you work with a dealer, you're almost always getting fleeced. Again, some people enjoy the process as a sort of game or hobby, but you're likely not making a profit unless you're extremely good at it.
EDIT: I read this over and it sounded a little fanboyish. I want to make clear that I've been gone from CarMax for almost 5 years and I don't own stock or have any other financial stake in their success other than some friends who are still employed there. I just think they're a good company (although I didn't love working in IT).
The second route is the "trade-in." Most dealers almost never pay cash for the amount of money that they offer for trade-in. It's purely a negotiating tactic meant to make a buyer feel better about a (relatively arbitrary) price on a car ("$14k for a 2015 Ford Focus is kind of high, but we really like that we're getting $4k for our 2007 Pontiac Aztek!"). Whenever you work with a dealer, you're almost always getting fleeced. Again, some people enjoy the process as a sort of game or hobby, but you're likely not making a profit unless you're extremely good at it.
EDIT: I read this over and it sounded a little fanboyish. I want to make clear that I've been gone from CarMax for almost 5 years and I don't own stock or have any other financial stake in their success other than some friends who are still employed there. I just think they're a good company (although I didn't love working in IT).
Private sales are generally fairly easy if you have a normal, common car selling for under about $7000 (depending on location). A lot of people can scrape together that much cash. But more expensive vehicles take a lot longer to sell. The buyers are more picky, and most of them need some form of financing which complicates the sale.
One trick with dealers is to never mention a trade in until you're almost at the end(or defer discussions about it). That way you leave open the option to leave the trade-in out of the deal and force them to give you a number without it factored it.
Also, never do the 4-box and have your financing sorted out up-front if you're not doing cash. Any chance they get to adjust more than one number is when they'll adjust the terms in their favor.
Also, never do the 4-box and have your financing sorted out up-front if you're not doing cash. Any chance they get to adjust more than one number is when they'll adjust the terms in their favor.
...Maybe, if you find the right buyer, after you publish address to and meet with who knows what sort of people, and possibly deal with scams that will try to rip you off of the entire value of the car and possibly more...
There's more than just minutes spent in dealing with private-party sales.
There's more than just minutes spent in dealing with private-party sales.
Accepting those risks and developing the confidence to buy and sell stuff yourself can be pretty profitable, and and comes with a sense of independence that can be very valuable.
...and you can do it a lot and have a profitable hobby of buying and selling cars, unless you'd rather spend your time on other things.
There is no guarantee of market efficiency for single sellers, and while you aren't being explicit about it, I suspect that your belief that people are rational about selling their vehicles rests on a view that this markets efficiently determine price.
Forgive me for inferring too much from your statement if I am, but this is exactly the kind of situation in which the zero arbitrage principle doesn't apply. if I make a bunch of offers to buy a car for less than it's worth, then all I need to do is find one person who is selling that car and not shopping around. There's no reason to expect any market forces to govern that transaction at all.
There is no reason to believe that selling your car for whatever the first person you find offers is likely to give you a fair price.
Forgive me for inferring too much from your statement if I am, but this is exactly the kind of situation in which the zero arbitrage principle doesn't apply. if I make a bunch of offers to buy a car for less than it's worth, then all I need to do is find one person who is selling that car and not shopping around. There's no reason to expect any market forces to govern that transaction at all.
There is no reason to believe that selling your car for whatever the first person you find offers is likely to give you a fair price.
I think you're reading way too much into it.
I'm basically speaking from personal, anecdotal experience selling (and buying) a few low-end cars via Craigslist and equivalents.
I have other things I'd rather do with my time than either handle a bunch of prospective buyers inspecting, test driving, and low-balling my car (and dealing with potential fraud), or myself inspecting, test-driving, and low-balling other people's cars, even though that may be a way to save/earn some money.
From an economics point of view, the transaction costs are significant (even if not dollar-denominated), so the arbitrage opportunity exists for someone who can minimize or simply disregard those costs.
I'm basically speaking from personal, anecdotal experience selling (and buying) a few low-end cars via Craigslist and equivalents.
I have other things I'd rather do with my time than either handle a bunch of prospective buyers inspecting, test driving, and low-balling my car (and dealing with potential fraud), or myself inspecting, test-driving, and low-balling other people's cars, even though that may be a way to save/earn some money.
From an economics point of view, the transaction costs are significant (even if not dollar-denominated), so the arbitrage opportunity exists for someone who can minimize or simply disregard those costs.
just because associated costs exist doesn't mean that they are reflected in the offered price. In order for that to be the case you would have to make a zero arbitrage argument, which doesn't apply to markets where sellers simply sell to the first buyer offer.
I'm not sure why you keep bringing up selling to the first offer and zero arbitrage.
goatherders and I both described working with multiple buyers, and that finding the right buyer (that is, the one who will pay you $1,000 more than some other buyer) requires time and effort. When considering whether to accept an offer on the table or hold out for a better offer, the seller implicitly or explicitly considers the transaction costs (search, delay, processing, risk, privacy, etc.).
This implies non-zero arbitrage, multiple offers, and market inefficiency.
goatherders and I both described working with multiple buyers, and that finding the right buyer (that is, the one who will pay you $1,000 more than some other buyer) requires time and effort. When considering whether to accept an offer on the table or hold out for a better offer, the seller implicitly or explicitly considers the transaction costs (search, delay, processing, risk, privacy, etc.).
This implies non-zero arbitrage, multiple offers, and market inefficiency.
> How many hours of work is worth an extra $1000
Let's say it's an extra 12 hours to sell via private party (posting pics, meeting people, haggling, etc). That's $80/hr. You may not actually be earning that whole time, but it's also opportunity cost for doing other things you may value more (time with family/friends/etc).
Let's say it's an extra 12 hours to sell via private party (posting pics, meeting people, haggling, etc). That's $80/hr. You may not actually be earning that whole time, but it's also opportunity cost for doing other things you may value more (time with family/friends/etc).
I've got a car for sale right now for $31k. It's not listed widely (just an enthusiast forum) and I've had a couple nibbles after about a month, one guy test drove it and seems really interested.
I also just changed the oil and am considering changing the differential fluid.
I've already put multiple hours into listing, uploading pictures, meeting the guy to test drive, responding to texts, phone calls, etc.
Because of the relative value of the car, I intend to meet the buyer at the BUYER'S bank to do the paperwork and see the cashier's check drawn in person (there are lots of cashier's check scams these days).
Assuming I sell it to the interested buyer, it's a fairly conservative estimate to say it'll take me 6-8 hours with the one buyer. If I list it more widely on, say, craigslist, I get to deal with finding time to meet a bunch of tire kickers, THEN finding the time off work or on a saturday morning to go to the bank to do the transaction.
In California, if the vehicle is 5-6 years old or more, the seller is also responsible for getting the car smogged; likely if you took it to a CarMax type place they'd take care of all of that stuff for you (just a guess though).
In the end, I am LIKELY to make, say, $5k over what a dealer would offer me, but there's no way of being sure that I'll get 1 cent over what a dealer would offer.
Ultimately it depends on the market. I only buy fairly unusual cars; my previous car took me 4-6 months to find, the car I'm selling took 4 months to order. I once took 6 months to sell a purple M3.
Done right, enthusiast cars hold their value well, but the target demographic is smaller so they take longer to sell.
I also just changed the oil and am considering changing the differential fluid.
I've already put multiple hours into listing, uploading pictures, meeting the guy to test drive, responding to texts, phone calls, etc.
Because of the relative value of the car, I intend to meet the buyer at the BUYER'S bank to do the paperwork and see the cashier's check drawn in person (there are lots of cashier's check scams these days).
Assuming I sell it to the interested buyer, it's a fairly conservative estimate to say it'll take me 6-8 hours with the one buyer. If I list it more widely on, say, craigslist, I get to deal with finding time to meet a bunch of tire kickers, THEN finding the time off work or on a saturday morning to go to the bank to do the transaction.
In California, if the vehicle is 5-6 years old or more, the seller is also responsible for getting the car smogged; likely if you took it to a CarMax type place they'd take care of all of that stuff for you (just a guess though).
In the end, I am LIKELY to make, say, $5k over what a dealer would offer me, but there's no way of being sure that I'll get 1 cent over what a dealer would offer.
Ultimately it depends on the market. I only buy fairly unusual cars; my previous car took me 4-6 months to find, the car I'm selling took 4 months to order. I once took 6 months to sell a purple M3.
Done right, enthusiast cars hold their value well, but the target demographic is smaller so they take longer to sell.
For us deal hunters the thrill is in the hunt as much as the purchase. Recently bought a new car for 7k off MSRP. I live in Georgia and found the exact model in Virginia. I only told them about the Virginia offer at the very last second. Had the offer printed out and in hand.
All this being said I likely won’t buy a used car again. My 3 other cars were all used.
All this being said I likely won’t buy a used car again. My 3 other cars were all used.
I was a CarMax "IT associate" once upon a time.
First, CarMax itself is a great company and they do good work. I'd recommend them to anyone who is either not a good negotiator or who can't afford to invest in the typical car market activities.
As other commenters have mentioned, the two major variables that matter to CarMax are the age and number of miles. CarMax will buy literally any car. For almost any vehicle, CarMax will immediately put it in the auction lane whenever it has more than 100k miles or is over 10 years old. In fact, a lot of their employees ("associates") would make a game of finding an older car with low mileage that they could snap up with CarMax's associate discount.
As the article mentions, CarMax makes on average $2k gross profit per (retail) vehicle. CarMax wants to move inventory quickly, just like any normal retail operation (including its deceased parent company Circuit City). If a vehicle is priced too high, its price will be reduced until it can sell. Thus, CarMax attempts to minimize any unforeseen problems that may occur during the reconditioning process, as these can make the cost (to CarMax) balloon out of control. I honestly wish I could say more about the strategy and analysis that CarMax puts into this. It's truly remarkable to behold.
So, yes, you can sometimes get much more for a vehicle on the open market if (1) you've got a car that's outside the parameters of what CarMax puts on the front lot and (2) you're willing and able to negotiate for a private sale.
First, CarMax itself is a great company and they do good work. I'd recommend them to anyone who is either not a good negotiator or who can't afford to invest in the typical car market activities.
As other commenters have mentioned, the two major variables that matter to CarMax are the age and number of miles. CarMax will buy literally any car. For almost any vehicle, CarMax will immediately put it in the auction lane whenever it has more than 100k miles or is over 10 years old. In fact, a lot of their employees ("associates") would make a game of finding an older car with low mileage that they could snap up with CarMax's associate discount.
As the article mentions, CarMax makes on average $2k gross profit per (retail) vehicle. CarMax wants to move inventory quickly, just like any normal retail operation (including its deceased parent company Circuit City). If a vehicle is priced too high, its price will be reduced until it can sell. Thus, CarMax attempts to minimize any unforeseen problems that may occur during the reconditioning process, as these can make the cost (to CarMax) balloon out of control. I honestly wish I could say more about the strategy and analysis that CarMax puts into this. It's truly remarkable to behold.
So, yes, you can sometimes get much more for a vehicle on the open market if (1) you've got a car that's outside the parameters of what CarMax puts on the front lot and (2) you're willing and able to negotiate for a private sale.
CarMax was originally created under Circuit City? I had no idea! Interesting that they were able to succeed when CC crashed so hard.
Today I also learned, via wikipedia, that Circuit City is attempting a comeback.
Today I also learned, via wikipedia, that Circuit City is attempting a comeback.
This is just anecdata. We bought a used car at Carmax and they gave us way, way, way above bluebook value for our trade-in (and all other offers, too -- and we were pretty aggressive in researching trade-in offers at other places and were prepared to be underballed by Carmax).
My anecdata is no more useful than yours. Unless someone provides some actual reliable data points to produce a real, known trend, there's no proof here.
My anecdata is no more useful than yours. Unless someone provides some actual reliable data points to produce a real, known trend, there's no proof here.
My experience was similar. I sold a 2006 to them that had major visible rust issues. The KBB was 1650, they gave me 1600. I was surprised they bought it at all to be honest.
A trade-in is not the same as an actual sale for cash.
If you indeed got a great deal on the trade-in it just meant you got less of a great deal on the other components of the sale.
If you indeed got a great deal on the trade-in it just meant you got less of a great deal on the other components of the sale.
As far as I know, CarMax doesn't negotiate on the price. The price they list is the out the door price. So it's not like OP walked in and they added document fews and headlight fluid fees. He knew the price he was going to pay for the CarMax car, and was pleasantly surprised with the trade in value of his old car.
Since we're telling anecdotes, I brought in a 1999 Honda Prelude back in 2005. They offered me $6k. I sold it on eBay for $11k.
Completely agree with user cstejerean here. You didn't say anything about your car, but I will hazard a guess that it was over 10 years old, but still a somewhat rare or desirable vehicle. Carmax doesn't want vehicles over 10 years old.
Also, to other commentors here, consider tax implications when you compare sale price on a trade-in. If you wind up paying taxes on the sale of your vehicle, that may offset the increase in price on a private sale.
Also, to other commentors here, consider tax implications when you compare sale price on a trade-in. If you wind up paying taxes on the sale of your vehicle, that may offset the increase in price on a private sale.
Don't buyers pay the sales tax?
It appears that I had an incorrect assumption:
https://www.dmv.org/articles/income-tax-implications-of-sell...
Note that this is not an official DMV site for any government organization
https://www.dmv.org/articles/income-tax-implications-of-sell...
Note that this is not an official DMV site for any government organization
When you buy a used car, you pay sales tax on the purchase price less the value of your trade in. So effectively, you need a private sale offer of at least the sales tax rate higher than the trade in offer to break even.
Sales tax wouldn't come in to play if you just sold your car to Car Max though.
Sales tax wouldn't come in to play if you just sold your car to Car Max though.
If Carmax offered you 2k then the car you were trading in was not something they were interested in, so they probably offered you what they could get at auction for it. There are certain things for which you don’t want to use carmax. Also, did you sell it private party for $7k or was that at another dealership?
I’ve bought and sold a decent number of cars over be years and carmax has routinely offered the best price I could get from any other dealership, but it depends on the specifics. I may trade in my heavily modified Jeep Wrangler next and that’s not something I would bother with carmax for. They don’t generally sell modified 4x4 rigs, so they’re likely to flip it at auction and therefore make a lowball offer. So I’m going to go to a dealership that specializes in what I’m selling.
I’ve bought and sold a decent number of cars over be years and carmax has routinely offered the best price I could get from any other dealership, but it depends on the specifics. I may trade in my heavily modified Jeep Wrangler next and that’s not something I would bother with carmax for. They don’t generally sell modified 4x4 rigs, so they’re likely to flip it at auction and therefore make a lowball offer. So I’m going to go to a dealership that specializes in what I’m selling.
That's a classic used car tactic, and it's amazing how folks still become fixated on the price they'll be able to buy something for without realizing the price difference will come from the amount they receive from their 'trade-in.'
Exactly. This is a point the article misses. I do believe they mark up the sale price similarly, but probably make even more margin on underpaying for their inventory.
Separately, I find it ironic that the term "no haggle" has been now socialized to mean "buyer friendly". Certain segments of the population have fallen for it, hook, line and sinker. In reality the notion that they refuse to haggle (i.e. refuse to lower our prices) should be viewed as anti-consumer. At least that's how I take it. I'd never, in a million years, buy something that high in price where the price couldn't be negotiated.
Lastly, the article [1] that's linked to in OP's article is actually more fascinating in my opinion. It describes a California court ruling against CarMax's inspection policy and how it violates 2006 California Consumer Protection statutes. Pretty interesting.
[1] https://jalopnik.com/california-court-says-carmax-certificat...
Separately, I find it ironic that the term "no haggle" has been now socialized to mean "buyer friendly". Certain segments of the population have fallen for it, hook, line and sinker. In reality the notion that they refuse to haggle (i.e. refuse to lower our prices) should be viewed as anti-consumer. At least that's how I take it. I'd never, in a million years, buy something that high in price where the price couldn't be negotiated.
Lastly, the article [1] that's linked to in OP's article is actually more fascinating in my opinion. It describes a California court ruling against CarMax's inspection policy and how it violates 2006 California Consumer Protection statutes. Pretty interesting.
[1] https://jalopnik.com/california-court-says-carmax-certificat...
No haggle, if genuine, means that there's less information asymmetry between buyer and seller.
A buyer can look at a variety of places and see real prices, and thus have a gauge of the market. If everything is a negotiation, you'd have to invest considerable time negotiating the 'true' values, or else estimating based on general market knowledge. In either case, the buyer has to work much harder to gather information about the market.
A reduction in information asymmetry should work strongly in the buyer's favor relative to the old system.
A buyer can look at a variety of places and see real prices, and thus have a gauge of the market. If everything is a negotiation, you'd have to invest considerable time negotiating the 'true' values, or else estimating based on general market knowledge. In either case, the buyer has to work much harder to gather information about the market.
A reduction in information asymmetry should work strongly in the buyer's favor relative to the old system.
It's true: with haggling, the buyer is at a disadvantage if they don't have the time to gather information. But isn't that like with supermarkets, where the buyer is at a disadvantage if they don't have the time to clip coupons? In both cases, the point is to let people who have more money but less time subsidize people who have more time but less money, so that everyone can obtain the goods even if they don't quite pay the average price required to keep the business afloat. I should think that if you're against one of these tactics (haggling), you should also be against the other (clipping coupons). Curious if that's the case.
Dealers really don't like to give you give you an offer good for more than a few minutes, let alone in writing. Coupon prices are published in a separate venue, but still published.
Couponing for groceries is a pain in the ass, so enough people don't bother to do it, and that makes for a stable balance of people paying too much and people paying too little. With something as high value and infrequently purchased as a vehicle, finding a coupon in a separate venue is something almost everyone would do if they knew about it, and so it wouldn't achieve the necessary balance. Whatever the tactic is (haggling, couponing, who knows what they'll think of next) it has to be a sufficient pain in the ass for this concept (letting people with extra money and no extra time subsidize the opposite) to work. Not everyone agrees with this concept (stealing from the rich to give to the poor, welfare, however you want to think of it) but at the end of the day it makes for more people being able to purchase.
Shopping for outside financing and declining the prepaid maintenance contract are also things everyone would do if they knew. They are well documented in any kind of “how to buy a car” article, yet most people don’t seem to know.
You see it as people being suckers, I see it as not having time to fuck around with shady dealer tactics, Craiglist joyriders and tire kickers.
Sometimes you don't have 20h+ to dedicate to those shenanigans. In that case if CarMax comes within some Delta of KBB/etc I fail to see how that's "anti-consumer".
I've sold cars pretty much all different ways and found CarMax's proposition to be pretty reasonable.
Sometimes you don't have 20h+ to dedicate to those shenanigans. In that case if CarMax comes within some Delta of KBB/etc I fail to see how that's "anti-consumer".
I've sold cars pretty much all different ways and found CarMax's proposition to be pretty reasonable.
> In reality the notion that they refuse to haggle (i.e. refuse to lower our prices) should be viewed as anti-consumer
Lowering prices isn't the same as haggling. Haggling is going to see some salespeople lowering the price more or less for some people vs others, and open them up for a massive discrimination class action lawsuit.
Lowering prices isn't the same as haggling. Haggling is going to see some salespeople lowering the price more or less for some people vs others, and open them up for a massive discrimination class action lawsuit.
> salespeople lowering the price more or less for some people vs others
Agreed. Why must that naturally lead to the idea of discrimination? If I'm selling a car privately, and a buyers arrives and agrees to pay my full asking price, have I discriminated against him, even though I know secretly I would have taking $1k less than asking, had he merely asked?
Agreed. Why must that naturally lead to the idea of discrimination? If I'm selling a car privately, and a buyers arrives and agrees to pay my full asking price, have I discriminated against him, even though I know secretly I would have taking $1k less than asking, had he merely asked?
if you're a larger company, defending yourself against charges of allowing discriminatory behavior would just be too costly. why allow it?
This is spot on. They offered me $6500 for my car, which was way below blue book. I sold it on Craigslist for $9700 a few days later.
You will always be able to get more money on a private party sale than trading into a dealer. Did any other dealership offer you more than $6,500?
Yes, another dealership offered me $7500. CarMax was by far the low ball offer.
The difference of 800 for a car in that price range is far from significant.
What? It's 10%, and definitely non-trivial.
Of course they won't give you private sale value; they're buying it to resell.
I had the same experience earleir this year. I had a 2012 Mini Cooper with 50k miles on it. KBB dealer trade in was $6k, private sale $8k-10k. Carmax offered me $2k for the car. They showed me the KBB "instant offer" that was for $1.8k.
I have since sold the vehicle in private sale. I would have taken $6k +/- from Carmax to sell it on the spot.
I have since sold the vehicle in private sale. I would have taken $6k +/- from Carmax to sell it on the spot.
Not sure this is true. This is just a single data point, but a couple years ago I tried to sell a relative's car. CarMax offered more than the dealer did.
You can nearly always get more money for your car selling it directly to an interested buyer, of course, but when comparing CarMax to traditional dealers, they seem to be on par or better.
You can nearly always get more money for your car selling it directly to an interested buyer, of course, but when comparing CarMax to traditional dealers, they seem to be on par or better.
Car dealers don't use Kelly blue book, they use either black book or "MMR" (Mannheim market report).
You can go to Mannheim and see auction results from the previous weeks and see what your vehicle is going for. Print it out when you go in, they are saving the $500-$1000 cut Mannheim takes.
> I ended up selling it the next week for $7k
Did you sell it to an individual?
Did you sell it to an individual?
Greed goes both ways. Tempted to haggle with them knowing their fat margins, especially near end of quarter when salespeople are focused on cashflow now not profit next quarter.
A lot of people will pay extra to avoid the typical used-car bullshit process, when buying... Shady dealers where you spend 2.5 hours haggling, encountering a $295 "documentation fee" you need to threaten to walk away to get removed, etc.
If I go to Carmax I know what I’m getting — a standardized but low-balled price for my car and no hassle. My time is worth money and the car buying experience is fucking miserable.
This exactly. When I compare my experiences buying houses and my experience dealing with car dealerships, I had s much more pleasant experience dealing with house buying.
> a standardized but low-balled price for my car
I've been amazed at the cars Carmax were willing to buy off of me. I tend to drive cars until the wheels are falling off, so it may be different for cars with more value.
I've been amazed at the cars Carmax were willing to buy off of me. I tend to drive cars until the wheels are falling off, so it may be different for cars with more value.
One of the appealing aspects of Carmax for investors is that they're the only dealership that makes money both on purchases as well as sales. Their appeal for consumers is that they're friendly and transparent, even if it's not the best deal.
Entire article summarizable under “because people pay more per-unit for service equivalent to elsewhere”:
When it comes to gross profit per unit, on average, CarMax raked in $2,147 per vehicle. Lithia Motors wasn’t far behind at $2,038 while other dealer groups such as Asbury, Penske, AutoNation and Sonic had a profit range between $1,565 and $1,090. Startup Carvana only managed to average $902 per unit.
But the fact that CarMax makes is the most profitable used car retailer in the country, is mostly the direct result of buyers often paying more for cars then they could have found elsewhere with a similar “no-haggle” experience
When it comes to gross profit per unit, on average, CarMax raked in $2,147 per vehicle. Lithia Motors wasn’t far behind at $2,038 while other dealer groups such as Asbury, Penske, AutoNation and Sonic had a profit range between $1,565 and $1,090. Startup Carvana only managed to average $902 per unit.
But the fact that CarMax makes is the most profitable used car retailer in the country, is mostly the direct result of buyers often paying more for cars then they could have found elsewhere with a similar “no-haggle” experience
Gross profit per unit doesn’t mean they are the most profitable used car retailer, or even that they are profitable at all.
Gross profit in accounting terms means the price the car sold for, minus the fire that cost of purchasing it. It probably doesn’t include sales or marketing costs, and unclear whether it includes Warranty costs. For example, Carvana is listed at making $900 per car, but a Carvana isn’t profitable at all because of those costs.
So I wonder if CarMax’s gross profit might be overstated because it’s driven by a more expensive base warranty?
Gross profit in accounting terms means the price the car sold for, minus the fire that cost of purchasing it. It probably doesn’t include sales or marketing costs, and unclear whether it includes Warranty costs. For example, Carvana is listed at making $900 per car, but a Carvana isn’t profitable at all because of those costs.
So I wonder if CarMax’s gross profit might be overstated because it’s driven by a more expensive base warranty?
>CarMax is an absolute powerhouse when it comes to pre-owned vehicle retailing.
I never understood the use of the phrase "pre-owned". I know it's short for "previously owned", but why not say "used"? My brain keeps parsing it as "before it is owned". And does anyone use this outside of the US/Canada?
The other day I went to an event where the check-in clerk asked "Are you pre-registered?" I asked "Is that different from being registered?" Turned out it wasn't different. So why say "pre-registered"?
I never understood the use of the phrase "pre-owned". I know it's short for "previously owned", but why not say "used"? My brain keeps parsing it as "before it is owned". And does anyone use this outside of the US/Canada?
The other day I went to an event where the check-in clerk asked "Are you pre-registered?" I asked "Is that different from being registered?" Turned out it wasn't different. So why say "pre-registered"?
Yeah. And if we're being honest only new cars are "pre-owned."
It's a car before the state of ownership... New.
Pre-registered? It's someone who hasn't resistered yet.
Shouldn't used cars be post-owned?
It's a car before the state of ownership... New.
Pre-registered? It's someone who hasn't resistered yet.
Shouldn't used cars be post-owned?
Interestingly couple years ago a BMW dealer offered me $2500 more for trade in of my 2014 5 series than what Carmax offered. Since then I always try to double check what other dealers offer
This is how carmax works. They’ll never give you the best offer, just a convenient process.
I ended up getting nearly twice as much from CarMax as I was offered from any dealers. However, I suspect this was because there was a serious problem with the steering column that CarMax missed in their inspection that the dealers did not.
Either way, the process was painless enough that I don't think it can hurt getting an additional valuation.
Either way, the process was painless enough that I don't think it can hurt getting an additional valuation.
I know that, but I expected it at least to beat an official bmw dealer
The article kind of dismisses carvana because their profit per unit is low compared to the rest. But, carvana's model is the future. I don't know what their financials are like, but if they are surviving on $902 profit per unit then they have the potential to surpass carmax and be the walmart of used cars... low profit per unit, but huge volume.
Carvana is losing lots of money according to original article. Their model is thus unproven.
CarMax is awesome, when you need a new car, you can go there and get one without too much worry about hidden problems or being overpriced. Markup they charge, provided they didn't change much in last few years is totally worth it.
Saving few bucks but risking having a car with problems is not worth it. This is where CarMax provides most value.
Saving few bucks but risking having a car with problems is not worth it. This is where CarMax provides most value.
What I didn't see in the comments is that CarMax has probably the best selection of vehicles in a given area.
To those who know exactly what they want, it doesn't matter as much, but for those who want to compare a RAV4 to a CR-V from the same lot, it's unbeatable.
That said, the recently reported glut in used cars probably negates some of CarMax's advantage. I bought my last car from a curbside dealer.
To those who know exactly what they want, it doesn't matter as much, but for those who want to compare a RAV4 to a CR-V from the same lot, it's unbeatable.
That said, the recently reported glut in used cars probably negates some of CarMax's advantage. I bought my last car from a curbside dealer.
CarMax is not the cheapest option, it never was. Their whole business model is to sell the car at a good-enough price, and to make the sale frictionless. And they've succeeded.
Today they are the market leader, but as the article suggests, if they start to use that leverage to sweeten their markup too much, other competitiors will come along and offer something better.
This is really just a news article about how a free market works.
Today they are the market leader, but as the article suggests, if they start to use that leverage to sweeten their markup too much, other competitiors will come along and offer something better.
This is really just a news article about how a free market works.
Dealers lose money every day a car sits on their lot. You want a good deal from any dealer, scrape results each week and hit them up on cars that haven't moved for months. They will flip it for $1 over cost just to get it from going red on their books and management getting upset.
Also make a point to go at the end of the month / quarter / year as they'll want to juice the sales numbers for that particular block.
Carmax is so successful because they emphasize the "why" and not the "how." Carmax believes buying and selling cars should be easy not cost effective for consumers. I sold a 2000 Toyota Tacoma with over 100k miles for $20k that I bought for $24k and drove for 7 years. Thought I got a good deal, literally took one hour. I just miss the truck.
Why do people pay $100+ for Windows/Office when linux/Libreoffice is free? One takes a lot less effort than the other.
My experience has been that Libreoffice tools are significantly easier to use than MSFT Office products, and also easier than Google Docs and related Google enterprise products. It has usually just been the case that a company has many employees already standardized on Windows machines, and wants enterprise support contracts.
I'd argue that Libreoffice being harder to administer and provide as a common tool is due to mistakes made earlier in the decision-making process, when originally standardizing on Windows or expecting browser-based solutions for these workflows.
But I agree that conditional on someone already having sunk money into those mistakes, the marginal extra cost of a turn-key solution for their environment is what makes the enterprise products attractive.
I'd argue that Libreoffice being harder to administer and provide as a common tool is due to mistakes made earlier in the decision-making process, when originally standardizing on Windows or expecting browser-based solutions for these workflows.
But I agree that conditional on someone already having sunk money into those mistakes, the marginal extra cost of a turn-key solution for their environment is what makes the enterprise products attractive.
I had a good experience buying a car from CarMax. Their maintenance and service quotes were extraordinarily high though.
As an aside, the Tom McParland articles are always interesting to me because he talks directly about auto sales, where if you go to a dealer if feels like you always get half-truths and the runaround.
They buy from people in need as well.
I debated on selling them my F150. They offered me 17k and I told them to go fuck themselves.
It got totaled ~4 years later and I got a bit over $17k.
So the people that need cash will bend over. Those too stupid to shop around (marketing works as well) will overpay.
Almost everyone I know falls in love with a car or house when they're buying because it's such a huge purchase. For me I'm only in love if it's a good deal. That's one thing my parents certainly taught me well (thanks!).
I debated on selling them my F150. They offered me 17k and I told them to go fuck themselves.
It got totaled ~4 years later and I got a bit over $17k.
So the people that need cash will bend over. Those too stupid to shop around (marketing works as well) will overpay.
Almost everyone I know falls in love with a car or house when they're buying because it's such a huge purchase. For me I'm only in love if it's a good deal. That's one thing my parents certainly taught me well (thanks!).
Interacting with a car dealership feels like you're walking into a poker game with "sucker" stamped on your forehead.
I recently tried to buy a barely used Lexus from a Lexus dealer and couldn't believe they used the same bullshit New Jersey Pontiac dealer tactics to sell me the car that were dated and transparent in 1987.
The only easier industry to disrupt is probably furniture or mattress sales.